United States District Court, Southern District of New York
April 24, 2003
PLAY STAR, S.A. DE C.V., PETITIONER,
HASCHEL EXPORT CORP., RESPONDENT.
The opinion of the court was delivered by: Louis L. Stanton, United States District Judge
Play Star, S.A. de C.V. ("Play Star"), a Mexican corporation, moves pursuant to Section 207 of the Federal Arbitration Act to confirm an arbitration award, for attorney's fees and costs, and post-judgment interest. Haschel Export Corporation ("Haschel"), a New York corporation, cross-moves to vacate the award on the grounds of misconduct and excess use of power by the arbitrator.
Background and Procedural History
The parties entered into an agreement on March 17, 1997 whereby Haschel sold toys to Play Star for distribution in Mexico. On April 9, 2001, Play Star initiated an arbitration*fn1 under the arbitration clause in the distributorship agreement, which provided that "any controversy arising out of or relating to this agreement. . . . shall be resolved by arbitration in the City of New York in accordance with the rules than [sic] obtaining of the American Arbitration Association" ("AAA"). Because it was an international dispute, the AAA's International Arbitration Rules governed.
On June 20, 2001 Robert Y. Stebbings, Esq. was appointed as the sole arbitrator by the AAA. Both parties submitted memoranda (called "memorials"), witness statements and exhibits. In November 2001, there was a two-day hearing before the arbitrator.
On February 11, 2002 the arbitrator issued the following award, without setting forth his reasons:
1. Within thirty (30) days from the date of
transmittal of this Award to the Parties, hereinafter
referred to as "Play Star" and "Haschel," Haschel
shall pay to Play Star the sum of $31,762.00. After
the date such payment is due, Haschel shall pay
interest on any unpaid balance at a compounded annual
rate of 6%.
4. This Award is in full settlement of all claims
and counterclaims submitted to this arbitration.
The Award was sent to the parties on April 1, 2002. That same day, Play Star wrote the AAA pointing out that Article 27.2 of the International Arbitration Rules*fn2
requires the tribunal to "state the reasons upon which the award is based" and requesting a reasoned award. In response, the arbitrator sent the parties a letter on April 11, 2002 stating:
I was under the mistaken impression that the
above-referenced case was being conducted pursuant to
the commercial rules and therefore prepared the award
pursuant to those rules. If the parties wish a
reasoned award pursuant to the international rules,
they should agree to reinstate me as arbitrator and
authorize me to prepare the award pursuant to the
international rules. The parties should be advised
that this may change the outcome.
On April 12, 2002 Haschel sent a letter to Play Star's lawyers, stating:
Please be advised that our client, Haschel Export
Corporation accepts the award rendered by Mr.
Stebbings on February 11, 2002, which was transmitted
on April 1, 2002.
However, should you wish to follow the procedures
outlined in Mr. Stebbings letter of April 11, 2002, in
response to your letter of April 1, 2002, we consent
to the reinstating of Mr. Stebbings as Arbitrator and
grant the authorization required to prepare the award
pursuant to the international rules.
On April 17, 2002 Play Star wrote to the AAA to confirm that "Play Star agrees to reinstate Mr. Stebbings as Arbitrator pursuant to Mr. Stebbings' letter of April 11, 2002."
After his reinstatement, the arbitrator received no additional evidence from either side. On June 28, 2002 he issued a second Award, setting forth the history of the transactions between the parties, making specific findings of fact, and giving the rationale for his Award, which concluded:
Haschel shall pay to Play Star damages of
$303,087.58 plus interest calculated to the date of
payment at the respective statutory annual rates
provided by the law of the State of New York
applicable to contracts entered into and to be
performed in the State of New York, calculated as
This Award is in full settlement of all claims and
counterclaims submitted to this Arbitration.
The arbitrator gave no explanation for the vast difference between the amounts of the two awards. On July 15 Haschel wrote the AAA pursuant to Article 30.1 of its International Arbitration Rules,*fn3
which allow a request for interpretation, correction of clerical errors, or an additional award on omitted claims. Play Star opposed, arguing that "Any obscurity or ambiguity in the grounds for the decision does not warrant a request for interpretation of the award." (Santens' 7/19/02 ltr., p.3, emphasis in original).
By letter dated August 19, 2002 Mr. Stebbings stated "I hereby decline to issue a follow-up to my award of June 28, 2002."
"Arbitration awards are subject to very limited review in order to avoid undermining the twin goals of arbitration, namely, settling disputes efficiently and avoiding long and expensive litigation." Folkways Music Publishers, Inc. v. Weiss, 989 F.2d 108, 111 (2d Cir. 1993). The party seeking to vacate the award bears the burden of proof. Id. If "a barely colorable justification" for the arbitration award exists, the award should be confirmed. Landy Michaels Realty Corp. v. Local 32B-32J, Service Employees Int'l Union, Aflcio, 954 F.2d 794, 797 (2d. Cir. 1992).
Although courts accord great deference to arbitral decisions, a district court may vacate an arbitration decision where at least one ground specified in 9 U.S.C. § 10 of the Federal Arbitration Act ("FAA")*fn4 is found to exist or for "manifest disregard of the law." See e.g., Carte Blanche (Singapore) Pte., Ltd., v. Carte Blanche Int'l., Ltd., 888 F.2d 260, 265 (2d Cir. 1989). Among other grounds, the FAA permits vacatur of an arbitral award where "the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made." 9 U.S.C. § 10 (a)(4).
To ensure meaningful judicial review, an arbitrator's award is not immune from scrutiny. Courts have frequently remanded arbitration awards for clarification or completion. As the Second Circuit has stated:
Indefinite, incomplete, or ambiguous awards are
remanded `so that the court will know exactly what it
is being asked to enforce.'. . . We have observed that
`courts on occasion may remand awards to arbitrators
to clarify the meaning or effect of an award, or to
determine whether the arbitrator has in some way
exceeded his powers.
Ottley v. Schwartzberg, 819 F.2d 373
, 376 (2d. Cir. 1987) quoting American Ins. Co. v. Seagull Compania Naviera, S.A., 774 F.2d 64
, 67 (2d. Cir. 1985); Siegel v. Titan Indus. Corp., 779 F.2d 891
, 894 (2d. Cir. 1985).
It is common ground that Mr. Stebbings' Second Award contains a fair description of the facts and the reasons for his present award, sufficient to sustain it in all respects, if considered only by itself. The major part of Play Star's submission is devoted to that proposition. But that poses the issue: it does not resolve it.
There is a serious omission in the Second Award. The First Award is as much a part of a history of the proceedings as the demand for arbitration, the evidence submitted at the hearing, or the Second Award itself. When the First Award was rendered, it stood as the complete adjudication and disposition of all claims in the arbitration. Its transmittal to the parties rendered the arbitrator functus officio,*fn5 having discharged his responsibility to render a fair and equitable decision. He could take no further action without the consent of both parties.*fn6 But for the intervention of Play Star's request for a statement of reasons, the arbitration proceedings would have been terminated at that point, and the First Award would stand as the final disposition of the parties' rights.
Thus, any statement of reasons for the Second Award is incomplete if it fails to recognize the existence of the prior determination of the same issues, on the same evidence, between the same parties, and by the same arbitrator. An award with such an omission, which grants a recovery 9.5 times larger without any explanation of the difference, can only partially and imperfectly "state the reasons upon which the award is based" as required by the International Rules.
Some reason must be given for departing so markedly from a determination that under normal circumstances would have an effect equivalent to res judicata as between the parties. The Second Award is so imperfectly executed, as to require some further explanation. See Brookdale Hosp. Med. Center v. Local 1199, Nat'l Health & Human Service Employees Union, 107 F. Supp.2d 283, 292-93 (S.D.N.Y. 2000) (remanding case for written clarification from arbitrator on factual ambiguities).
Play Star urges that Haschel consented to Mr. Stebbings' resumption of his status as arbitrator, with full knowledge that it might lead to a changed result. Indeed, at one point Play Star goes so far as to say that "Haschel expressly agreed to the result obtained" (its Jan. 30, 2003 Memo, p. 10).
Two factors render this argument unavailing. First, Mr. Stebbings' statement that giving him authorization "to prepare the award pursuant to the international rules . . . may change the outcome," hardly gives fair notice that the amount of the award might be increased almost ten times. Had Haschel been given fair warning of that possibility, it is unlikely it would have consented.
Second, there is at least a technical argument that Haschel did not consent. While its letter of April 12 consented "to the reinstating of Mr. Stebbings as arbitrator" and granted him authorization "to prepare the award pursuant to the international rules," it granted no express consent to his speculation that such application of the International Rules might change the award, much less increase it by a factor of almost ten. Thus, the text of Haschel's April 12 letter is insufficiently conclusive to bind it to the Second Award as that Award presently stands.
The Second Award is remanded to arbitrator Robert Y. Stebbings, Esq. for clarification. The motions to confirm and to vacate the Award are denied, with leave to renew after the clarification.